Deconstructing CSR: Corporate philanthropy

Oliver Balch tackles key topics in academic thinking and research on sustainability

Philanthropy, derived from the Greek Philanthropos, literally the “love of mankind”, is an abiding part of modern corporate social responsibility. Defined as a charitable act carried out for the good of society, its defining characteristic is its voluntary nature. Oblige companies to spend a certain amount of pre-tax profits on philanthropic endeavours, as Company Law reforms in India now require, and such monies are no longer strictly philanthropic.

Corporate philanthropy is most closely associated with benevolent (and often religiously-minded) Victorian entrepreneurs, such as LordLeverhulme, George Cadbury and Joseph Rowntree. Early nineteenth-century business titans such as Andrew Carnegie and John Rockefeller earned similar reputations for charitable largesse in the US.

The first attempt to theorise the practice of philanthropy in business management had to wait until the late 1970s, however. In his classic 1979 taxonomy of CSR (revised in 1991), Archie Carroll identifies philanthropy as the peak of a four-dimensional pyramid (topping ethical, legal and, at the base, economic behaviours). Carroll’s definition of philanthropic CSR – namely, “actions that are in response to society’s expectation that businesses be good corporate citizens” – leaves wide scope for interpretation. Perhaps the important theoretical note is the non-mandatory nature of such expectations: philanthropy is a nice-to-do, not a must-do.

Corporate philanthropy presents itself in many forms and focuses on many areas. Contributions can be in cash or in kind (typically donated product or volunteers’ time), while the list of potential beneficiaries extends as long as the world’s directory of charities. One method of categorising such activities is through the governance structures attached to them. Brian Husted suggests three classifications. The first is what might be termed “outsourced CSR” (commonly referred to as “cheque-book philanthropy”), where companies make cash contributions to a charity and walk away.

This strategy emerges from either corporate disinterest or a genuine belief that charities are the subject experts and best left to their own devices. The second category relates to in-house projects, where companies lead their own philanthropic activities. This has the benefit of corporate control, but limits reach and external credibility. A third category focuses on collaboration between corporations and non-corporate partners. CSR orthodoxy strongly favours this final “partnership” approach.

Credit: CHOATphotographer

Academic interest in social partnerships has peaked in recent years. Such collaborations seek to address societal issues (such as education, health and the environment) by combining the resources of all partners to offer what are frequently described as “mutually beneficial” solutions. Ideally, as Andrew Crane and Maria May Seitanidi put it, corporate philanthropic activities transposed across sectors and undertaken jointly “represent the alignment of strategic business interests with societal expectations” (Crane & Seitanidi 2009: 414).

Rise of strategic philanthropy

Of the two purported benefits, economic and social, business scholars have typically homed in on the former. One of the first exponents of so-called “strategic philanthropy” was INSEAD affiliate professor Craig Smith, who observed companies such as AT&T, IBM and Levi Strauss combining their business and philanthropic units to increase their reputation, reduce R&D costs, boost employee productivity and generally gain for themselves a competitive edge (Smith 1994).

The best known theorists of strategic philanthropy, however, are the American academics Michael Porter and Mark Kramer. In a 2002 Harvard Business Review paper they proposed a “context-focused approach” to corporate philanthropy that explicitly and unashamedly aligned social and economic goals. Porter and Kramer cite the example of US tech firm Cisco Systems, which set up a Cisco Networking Academy to train computer network administrators, a clever way of making up for a human resource shortfall in foreign markets while at the same time improving the employability for young people. A veritable “win win”.

Such neat outcomes do not emerge from any and all partnerships. As Porter and Kramer advise, corporations “need to rethink both where they focus their philanthropy and how they go about their giving” (Porter & Kramer 2002: 59).

Get the where and how right

The sweet spot for a competitive outcome comes from promoting improvements on one or all of four different contexts: factor conditions (or inputs of production, such as employees and technology); demand conditions (such as the size of the local market and the sophistication of local consumers); the context for strategy and rivalry (pro-business rules and regulations, basically); and related and supporting industries. As the pair conclude: “When corporations support the right causes in the right ways—when they get the where and the how right—they set in motion a virtuous cycle.”

One of the standout theoretical contributions of strategic philanthropy is the sucker-punch it delivers to Thomas Friedman’s famous “the business of business is business” argument. Friedman said that corporate giving not only distracts corporate decision-makers, but undermines their fiduciary duty to maximise financial returns for stockholders. The for-profit premise of strategic philanthropy squarely counters both claims.

Proving such business outcomes has proven tougher, however. Anecdotal evidence abounds, but empirical proof is harder to find. Applying Granger causality tests, the authors of a 2009 study looking at charitable contributions by US public companies from 1989 to 2000 find that philanthropic contributions are “significantly” associated with future revenue (Lev et al. 2009).

Meanwhile, a literature review by the Committee Encouraging Corporate Philanthropy highlights several grounds for a credible business case. Competitive factors include employee engagement, greater customer loyalty and a more robust brand image (Lim 2010). The most compelling argument of all is based on philanthropy’s contribution to business innovation and growth opportunities. Regrettably, firm proof here remains illusive.

Carroll, A B 1991. The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business Horizons. 34 (4): 39–48.

Seitanidi, MM| and Crane, A, and 2009. Implementing CSR Through Partnerships: Understanding the Selection, Design and Institutionalisation of Nonprofit-Business Partnerships. Journal of Business Ethics. 85:413–429

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